Joshua Korn

Joshua Korn, on behalf of David Strauss at Barclays, asked if the company still expects to achieve positive EBITDA in Q4 2025 and inquired about the directional outlook for year-end backlog.

Answer

CFO Pete McGrath clarified that due to the EAC adjustment in the quarter, the company now anticipates reaching positive adjusted EBITDA in 2026, not late 2025. He stated that year-end backlog is expected to grow with potential awards from CLIPS, OSAM, LTV, Jetson, and a possible Mars Relay opportunity, though specific numbers are not yet defined.

Joshua Korn, on behalf of David Stress from Barclays, asked about the potential benefits for Leidos from the additions to O&M funding in the reconciliation bill, specifically for unmanned marine and UAS programs.

Answer

CFO Chris Cage explained that existing O&M funding supports the currently deployed fleet, including software upgrades and sustainment. He noted it is currently unclear whether the new reconciliation funds designated for O&M could be redirected to procure incremental equipment, but the company is pleased with the overall opportunities presented by the bill.

Joshua Korn from Barclays inquired about Leidos's engagement with the GSA's recent request for information regarding potential contract offerings and what proposals were made.

Answer

CEO Tom Bell confirmed active engagement with the GSA through multiple channels, positioning Leidos as a partner for government efficiency. He emphasized that Leidos is not a traditional consultant, with less than 1% of revenue from such work, and is focused on delivering mission-critical technology and solutions.

Joshua Korn, on for David Strauss, requested more detail on the company's stated "pivot away from low-margin work," asking what type of work this involves and its implications for contract mix.

Answer

CEO Thomas Bell described it as a "gentle, purposeful approach" to de-emphasize areas by allowing work to attrit over time, for instance by not pursuing certain recompetes. CFO Chris Cage provided examples such as infrastructure support and large O&M jobs where Leidos is not technically differentiated, allowing a shift to higher-growth opportunities.

Joshua Korn, on for David Strauss, asked about capital deployment priorities for Q4 and beyond, particularly regarding share repurchases, now that the $500 million plan is nearly complete.

Answer

CEO Thomas Bell confirmed Leidos will complete the remaining $50 million of its repurchase plan and pointed to the recent dividend increase as a sign of the company's investor-friendly stance. CFO Chris Cage added that given the strong cash position and his belief that the stock holds value, the company will "continue to be comfortable moving into the market when it makes sense."

Joshua Korn, on behalf of David Strauss at Barclays, asked about the duration of the two recent Navy contracts and the impact of the Kinetrix acquisition on the updated financial guidance.

Answer

President, CEO & Director Rex Geveden stated the Navy contracts have a performance period of up to eight years. SVP & CFO Mike Fitzgerald explained that the earlier-than-expected close of Kinetrix had a minor impact on the guidance increase, which was primarily driven by strong operational performance. He noted the acquisition's EPS contribution is partially offset by interest expense.

Joshua Korn of Barclays asked for details on the new Navy propulsion contract's potential margin impact and whether BWXT was receiving any supplemental shipbuilding funds.

Answer

EVP & CFO Robb LeMasters stated that the new Navy pricing agreement will not cause a sudden 'kink up' in margins, as the company is still executing on older contracts and the new agreement reflects both current economics and higher performance expectations. President & CEO Rex Geveden confirmed BWXT is not a direct recipient of the current supplemental shipbuilding funds.

Joshua Korn from Barclays inquired about the timeline and quantification of how recent reconciliation bill funding would flow to HII's shipbuilding and unmanned businesses, and asked about any performance impacts on the Mission Technologies segment.

Answer

President and CEO Christopher Kastner stated that the funding is viewed as a significant tailwind and is already incorporated into the company's 4% mid-to-long-term shipbuilding sales guidance. For Mission Technologies, he noted that while 2025 guidance is firm, a slowing of awards and minor contract restructuring could potentially impact 2026, which the company is actively working to offset.

Joshua Korn, on behalf of David Strauss, asked about the expected performance of AA&S margins given potential industrial market declines and the financial impact of the new labor contract.

Answer

Donald Newman, EVP and CFO, stated that even with industrial headwinds, AA&S EBITDA margins are expected to remain in the mid-teens (15-16%) for the second half, supported by strength in other areas like specialty energy and medical. Kim Fields, President and CEO, added that the financial impact of the new labor contract was in line with expectations and is already factored into the company's guidance.

Joshua Korn, on behalf of David Strauss, asked about the potential positive or negative impacts from the DoD's memo on updating technology acquisition, and whether these would be short-term or long-term.

Answer

CEO John Mengucci explained that CACI views the executive orders and memos, particularly the mandate for a software-defined approach, as a net positive and a validation of CACI's long-standing strategy. He emphasized that CACI invested ahead of need in software-defined capabilities, aligning perfectly with the new directives. He also noted that the impact from the Department of Government Efficiency (DOGE) has been minimal, with only a $1 million impact formally notified.

Joshua Korn, on behalf of Barclays, asked for an update on the margin headwinds discussed in Q1, such as hiring and contract timing, and how those factors contributed to the significant margin improvement seen in Q2.

Answer

CFO Matt Calderone explained that the negative timing-related factors from Q1 reverted faster than anticipated in Q2. He advised viewing the first half as a whole, with a 10.9% margin that aligns with the full-year guidance of approximately 11%. He emphasized the company's focus on growing absolute adjusted EBITDA dollars, highlighting the strong year-over-year growth forecast.

Joshua Korn, on for David Strauss of Barclays, asked about the reasons for the drop in civilian segment margins over the last two quarters and the expected future trajectory.

Answer

CEO Toni Townes-Whitley explained the year-over-year decline was due to a non-repeatable, high-revenue surge in a program last year and the initial lower-margin ramp-up of new programs. She stated that as these new programs mature in the second half of the year, their margins are expected to improve, bringing the overall segment margin back into its appropriate historical range, excluding the prior year's one-time event.